Testing for short explosive bubbles: A case of Brent oil futures price

Shaoping Wang, Hao Feng and Da Gao

Finance Research Letters, 2023, vol. 52, issue C

Abstract: This paper considers the problem of detecting short explosive bubbles in financial data. Based on the backward sup Dickey-Fuller (BSDF), we propose a modified version of BSDF, namely mBSDF. We define the dating statistics by adding a modified term to the BSDF, enhancing the bubble emergence signal. We demonstrate the asymptotic distribution and the bubble duration estimates. A series of Monte Carlo simulations show that mBSDF significantly outperforms BSDF for shorter bubbles, and mBSDF can improve the bubble detection rate by up to 22.7%. As an empirical application, we apply the methods to the Brent crude oil futures price and the results confirm that mBSDF detects the latest oil spike shocked by the Russia-Ukraine conflict and almost all periods of explosive bubbles the oil market has experienced in recent years in contrast to BSDF, which further supports the superiority of mBSDF.

Keywords: Explosive bubble; Modified detection strategy; Oil price (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322006730

DOI: 10.1016/j.frl.2022.103497

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